Long-term Disability Insurance (LTDI)

Quick Look

  • Long-term disability insurance helps you replace income you are no longer able to earn in the event you become disabled.
  • Depending on circumstances, you might be able to earn additional income while receiving disability payments as well.
  • Some employers offer long-term disability insurance but if you leave that employer (for reasons other than becoming disabled), you will lose that policy and its associated benefits.

<< Understanding Basic Insurance Needs

Who needs Long-term Disability Insurance?

If you work and rely on the income from your job to support yourself or your loved ones, you need long-term disability insurance. If you’ve worked long enough to qualify, the government provides disability insurance through Social Security (SSDI). However the benefits are typically less than with private insurance and the qualification requirements are more stringent.

Private disability insurance typically provides between 60-80% of your gross pay (i.e before tax). However, payouts from LTDI are not taxed so you’ll typically receive about the same amount in net pay as you did previously. But make sure to note any caps that may be part of your policy (for example, if you make $2M a year, don’t expect your pay will remain that high on LTDI).

Can you earn additional income while receiving disability?

Depending on the type of LTDI you have, you may or may not be able to earn additional income while receiving disability. For example, if you work in construction and become disabled, an “own-occupation long-term disability” policy would allow you to receive some benefit and you could potentially get a job that was less physically strenuous. Conversely, an “any-occupation” policy would payout if you couldn’t work any job. 

Long-term Disability Insurance Through an Employer

Many employers will offer LTDI. You typically pay your premiums for through your paycheck. However, your policy will become inactive if you leave your job. In this case, you should sign up for LTDI insurance on your own (assuming your next employer doesn’t offer it).

How long can you receive long-term disability payments?

Most LTDI policies will last up to the point you can begin collecting Social Security at which point that will take over.

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